Tuesday, January 13, 2009
(Cont'd from above)...

Jim (cont'd):   

Because the charts matter so much in this market… I am looking at one chart every day this week… I am trying to teach you what we can learn from them… how to use them… how to make us better… now, frankly, I have always been a fundamentalist… I want you to think less Jonathan Edwards “Sinners in the Hands of an Angry God”… and more Benjamin Graham, and Warren Buffett, or perhaps techno moby… if you are as cool as I am… which is as cool as Coolio… does anybody listen to him anymore…. 63 year old guy doing Coolio… does it get better than that… who would ever change the station on a 63 year old Coolio imitator.

Anyway, I have got a healthy respect for technical analysis… and I think the charts are more than just pictagraphs… today I want to take a look at the chart for a stock that I just started buying for ActionAlertsPlus.com, my charitable trust… and that stock is ConocoPhillips…symbol (COP)… here’s the chart… before I tell you what the technicals are… what they are saying… do you mind if I give a big shout out to Dan Fitzpatrick, my colleague at TheStreet.com, where I am chairman… Dan is a great technician… he writes stuff all the time, and analysis charts at TheStreet.com… and he has been helping out on this entire series on the charts versus the fundamentals… the technical thesis here is that the sell off in October… where Conoco fell from $65 to $45 on high volume is what’s known as the climax sell off… meaning everyone who wanted out got out...  even though the stock went a tad lower in mid November… it did so on light volume… that is bullish… it is a bullish sign… it means that there was less overall selling activity.

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Since Conoco’s November low of $41 and change… the stocks action has been rewarding shareholders and penalizing sellers… as it now has what is known as a favorable average cost basis… in plain English, the pullbacks haven’t been very deep… and the rallies have followed a fairly predictable pattern… good for shareholders, bad for sellers…. notice I said volume like five… notice I never use those terms on the show… those are technical terms but I should be using them more frankly… it is just that I speak so much about the fundamentals and not the technicals.

Now, it has been about 3 months since the selling climax…. and at that time Conoco sideways trading… has generated enough confidence among buyers to make it easier to buy the stock… you feel like you are not going to lose money immediately… the chart is saying the stock should be bought here… technophobes would be saying that it has a good base… and a good base means that it has a launching pad of going much higher.

But and this is why I prefer the fundamentals over technicals… if Conoco’s rallies get smaller and it’s pullbacks get larger… than a technician would tell you the market is losing confidence in the stock… and if the sellers are able to push Conoco below $48.… guess what… then the chart would stop being bullish…. and these technicians would tell you to sell it… my attitude is that if like Conoco at $51, then you should like it even more at $48... as the yield gets bigger and bigger and the stock goes down… and you know how much we love high yielders.

But the technicians they are all about the action…they like it when a stock is bullish… they like bullish go up action… as soon as it goes south… they throw it away… there is no more reason for it… I think they could cause you to buy high and sell low… unless you use what is known as tight stops, and get out of Dodge real quick… or in this case Conoco… which is why we like to look at te fundamentals… the chart says that Conoco is a buy.. what do we think?… alright, Conoco is the 3rd largest integrated oil in the U.S…
the largest natural gas producer… which is of course why the stock is off 44 points from its high of 95... as both oil and natural gas have been completely pollaxed… I sold some for my charitable trust at $90 smackers… but now that Conoco is a $51 stock… it is trading at the steepest discount ever… 30% to the other major oils… undeserving… Conoco has fallen hard… but I think it can still sink a little bit lower… that would be good… see in my book that is good, because I get to buy cheaper… the chart guys don’t like that… I like it… in the mid $40’s… after it’s interim quarter update on Friday… that is what I am predicting… its got an interim report on Friday… I think it could go to mid $40’s… not that would make an ugly chart… but it would make me like it more.

Now, Conoco has a fabulous record when it comes to returning value to shareholders with buy backs and dividend increases… right now it yield 3.7%… that is well above the average for the group…. I wish these oils yielded more… only Conoco seems to return the money.. .but I would wait for the stock to come down to $47... where it will have, yes, a notoriously B.I.G. juicy 4% yield before buying Conoco… I would be sure you had that juicy yield… and by the way, I am so old I remember when Imtuna sang Juicy… and I thought she was referring to Juicy Fruit at that time… which is by far my favorite gum… as to say Double Mint.

I think the bad news is almost all baked into the stock… and we will be… if it goes down to the mid $40’s… where I will like it… on valuation… here is one of the things they teach you, never turn your back to the camera…. I’ve got this Ralph Lauren suit, I have had it for about 12 years… can you believe how good it looks… and this is a purple label… alright, anyway… now there is always some good news about virtually no project start ups in 2008.… and a 4% production decline… but Conoco should start recovering in 2009 when you start seeing up production… okay… and that momentum should continue thru 2010 with new projects in… yes Cramer fav, China… the Canadian oil sands… gutter gas three, which is actually guitar but they tell us to pronounce it gutter… and Indonesia… along with some new partnerships and joint ventures… that should lead to production growth which is what we want of 3 to 5% this year… something that none of the sell side analysts are expecting… we think they are wrong.

When the global economy recovers, Conoco will be ready to benefit… they have , Conoco’s refining and marketing, R&M business… Conoco is the second largest retailer in the United States… refiners benefit from lower oil prices…not only should cheaper oil help margins on their fining side… Conoco has also got an advantage over its competitors thanks to its large scale and efficient operations… valuation Conoco much cheaper than it’s peers… trading 7.1 times earnings… rest of the group is at 9.3 times earnings… now it could get cheaper still after the interim quarter update… I have mentioned that twice because I don’t want you to be surprised… it is ridiculous that this is the most hated of the majors… the most hated of the majors… because it is the most rewarding and shareholder friendly… that is an anomaly worth taking advantage of.

Here is the bottom line…

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The Bottom Line!:     The chart says that ConocoPhillips (COP*) is a buy right now… I would wait until the update on Friday… which I expect to be negative… cause then I think it could drive the stock down to the mid $40’s… where it will have a higher yield and be an even better buy… regardless of the price of oil or what the chart says… I think this stock under $50... buy, buy, buy.

COP’s chart says it’s a buy now, but I think that you should wait for a pullback...

[verbatim recap]

[end of segment]
 

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